FiscalNote Holdings, Inc. (NYSE:NOTE), a prominent AI-driven enterprise SaaS technology provider, has been buzzing in the M&A circles following an update surrounding a potential go-private transaction, presented by the company's CEO and co-founder, Tim Hwang. The intrigue deepens as Mr. Hwang, on November 17, 2023, filed an amendment to his Schedule 13D, explicitly linking any proposed go-private transaction to the approval of the Special Committee and a majority of unaffiliated stockholders. The company recently announced a Special Committee formed to assess the proposal. Let us have a closer look at the operations of FiscalNote and the possible strategic considerations underlying Mr. Hwang's proposition for a go-private move.
What Does FiscalNote Do?
FiscalNote Holdings, Inc. functions as a technology company, operating at the intersection of artificial intelligence, machine learning, and various cutting-edge technologies, which it seamlessly integrates with analytics, workflow tools, and expert research. The company specializes in delivering comprehensive intelligence through its suite of products focused on public policy and issues management. Additionally, FiscalNote offers powerful tools designed to streamline workflows, manage advocacy campaigns, and foster relationships with constituents. Its diverse clientele spans a spectrum that includes Fortune 100 companies, government agencies, law firms, professional services organizations, trade groups, and non-profits. Headquartered in Washington, District of Columbia, FiscalNote positions itself as a key player in the tech-driven landscape, providing innovative solutions to navigate the complexities of public policy, regulatory issues, and stakeholder engagement across various industries and sectors.
Expansion Into Fast-Growing Areas Of Risk And Compliance
FiscalNote's strategic shift toward adjacent markets, particularly in the realm of risk and compliance, emerges as a pivotal driver for future growth. The introduction of products like Risk Connector, a risk intelligence solution, showcases the company's ability to diversifying its offerings. With an emphasis on revealing operational, relational, and reputational risk, FiscalNote addresses the evolving needs of large enterprises navigating a complex global landscape. The early success of Risk Connector, securing its first anchor customer shortly after launch, underscores the market demand for innovative solutions in risk management. This expansion into fast-growing areas aligns with the company's overarching goal to leverage its AI expertise and proprietary data in providing indispensable tools for organizations to anticipate, understand, quantify, and track risks. By pursuing adjacencies to its core products, FiscalNote aims to tap into new revenue streams, enhancing its overall market position and contributing to sustained stock growth.
Generative AI Capabilities & Co-Pilot Program
FiscalNote's investment in generative AI capabilities, particularly the introduction of the Co-Pilot program, signifies a strategic move to foster faster revenue generation and maintain a competitive edge in the information services space. The Co-Pilot program, designed as a constellation of AI agents offering intelligent assistance for policy and risk management professionals, leverages the company's extensive AI, machine learning, and natural language processing capabilities. By creating lightweight applications catering to individual customer personas, FiscalNote aims to streamline day-to-day tasks, such as legislation drafting and regulatory analysis, through self-serve apps. The introduction of AI-enabled solutions reflects the company's objective to addressing the unique complexities of the legal and regulatory world. The Co-Pilot program, expected to roll out in the coming weeks and months, presents a clear path to faster revenue generation and enhanced customer value, potentially acting as a catalyst for sustained stock growth.
Achievement Of Adjusted EBITDA Profitability
FiscalNote's successful attainment of adjusted EBITDA profitability represents a significant milestone and a key factor why its top management is looking for a management buyout (MBO). The company's goal, outlined a year ago, has materialized, with Q3 results showcasing positive adjusted EBITDA of $700,000. This achievement, realized one quarter earlier than originally forecasted, signals strong operational efficiency and underscores the effectiveness of the company's strategic initiatives. FiscalNote's ability to convert incremental revenue into adjusted EBITDA at a remarkable 160% further highlights its aim to maintaining a lean and disciplined organization. This profitability not only positions the company favorably in the competitive landscape but also reflects its adaptability to the challenging macroeconomic environment. The focus on cost management, including actions such as reducing G&A, editorial, and other expenses, demonstrates FiscalNote's keenness to sustaining this profitability, providing a solid foundation for potential stock growth.
Source: Yahoo Finance
We see that FiscalNote’s stock price has not moved significantly even after the disclosure of the move to take the company private. The company’s valuation has undergone a significant correction as its EV/ Sales multiple has dropped from around 16x in 2022 to barely 2.78x as of date. This, coupled with the company recently reaching EBITDA profitability, explains why the MBO is a good opportunity for the management – they are able to buy out a profitable AI-focused entity at a dirt cheap valuation. Whether the FiscalNote MBO goes through or not is a question but we believe that the take-private offer could present a win-win opportunity for the management and the shareholders alike.